The outlook for oil prices in the third quarter of 2026 is now highly uncertain, analysts at BMI warned in a BMI report sent to Rigzone by the Fitch Group early Wednesday.
In the report, the analysts highlighted that current oil price moves broadly align with an alternative, bullish pathway for prices they outlined under the BMI Country Risk team’s ‘Constructive Negotiations’ framework for U.S.-Iran relations. They warned, however, that there is a significant and growing risk that the analysts will shift to a ‘Messy Negotiations’ framework.
“We are in the process of modeling new bullish, bearish, and base-case pathways for Brent under this scenario and will provide updated analysis and forecasts in line with our Country Risk guidance later this week,” the analysts revealed.
“Should we shift to the ‘Messy Negotiations’ scenario, we can make a credible case for a wide range of potential pathways for Brent,” they added.
The analysts noted in the report that, from a fundamental perspective, the market is now more vulnerable to disruption in the Strait of Hormuz than it was heading into the war in February.
“Fuel inventories are seasonally low, and we are moving into the peak demand season for oil, while the ongoing El Niño event raises the risk of additional shocks to the energy system,” they said.
“The coping mechanisms that helped restrain Q2 price action in Brent are also finite and, in some cases, now largely exhausted,” they added.
“A large drawdown of global crude inventories, rising exports outside the Gulf and sharp declines in Asian crude imports, led by Mainland China, helped absorb the initial disruption and contain the upside in prices,” they continued.
“However, the scope to repeat this response looks increasingly constrained,” they warned.
The analysts went on to state in the report that the fundamental balance for crude will hinge on the rate at which storage drawdowns can be maintained, how depressed Asian imports remain, how willing China is to continue tapping its inventories, and how much pressure tight fuels markets put on refiners to raise their run rates.
“That said, prices can often detach from fundamentals and sentiment will be key in determining the near-term pathway for Brent,” they highlighted.
“A more bearish case for prices rests on the fact that investors have been repeatedly rewarded for fading conflict-driven rallies in oil prices,” they said.
“That memory may stick, particularly given the risk that a single social media post from Trump can erase gains in minutes,” they warned.
The BMI analysts noted that the bullish case is that the U.S. will find it more difficult to anchor expectations for a short-lived engagement with limited spillovers for energy markets a second time around.
“Price action over the next few days will therefore be important in gauging where sentiment stands,” they pointed out.
The analysts revealed that “more of the status quo” would push them towards the bearish case and that a stronger rally, “particularly a break and hold above $90 per barrel, alongside a shift in the narrative towards scarcity”, would push them towards the bullish pathway.
They also stated that one event that would move them onto a “decidedly more bullish track” would be the resumption of Houthi attacks on Saudi Arabia export infrastructure -specifically Yanbu and Red Sea shipping.
“Saudi Arabia’s re-routing of flows via the East-West pipeline provided an important buffer for markets, with flows reaching around five million barrels per day during Q2,” they highlighted.
“However, the bulk of this has been routed south, via the Bab el-Mandeb Strait. Renewed attacks in the strait would force tankers northbound, via the Suez-SUMED corridor, raising costs and delaying shipments, and could meet with logistical bottlenecking,” they said.
“Meanwhile, attacks on Yanbu could take five million barrels per day of supply offline, depending on the severity of the damage and operational response by Aramco,” they continued.
The analysts also said in the report that a proposed 20 percent U.S. levy on cargo value added another layer of uncertainty for their forecast for the third quarter and beyond.
“For oil, the economics are highly unlikely to work,” they warned.
“On a fully laden VLCC carrying around two million barrels at $85 per barrel, a 20 percent charge would imply a cost of roughly $34 million per cargo, around $17 per barrel, before accounting for already elevated war-risk insurance and other costs,” they highlighted.
“Those margins are unlikely to be workable for refiners and, while GCC producers could technically still generate positive returns versus low unit costs of production, the charge would absorb a large share of the profit available to transfer to governments,” they said.
In a market analysis sent to Rigzone on Wednesday, Monte Safieddine, Head of Market Research at Capital.com, highlighted that the WTI oil price remained near $80 per barrel but pointed out that moves above that figure have so far failed to stick.
Saxo Bank noted in a statement posted on its site today that oil prices were trading higher for a third day after Trump threatened further strikes on Iran.
A J.P. Morgan report sent to Rigzone by the JPM Commodities research team late Tuesday highlighted that the estimated value of open interest in energy markets increased by four percent, or $31 billion, week on week, to $750 billion.
“This was primarily driven by an increase in prices across the whole energy complex (Brent +5 percent, WTI +4 percent, Gasoil +11 percent, TTF +11 percent week on week),” J.P. Morgan analysts stated in the report.
“We think the oil market’s least appreciated source of uncertainty is Russia, which has spent the last three months absorbing repeated Ukrainian drone strikes that have damaged refineries, storage facilities, and increasingly the complex secondary conversion units that determine product yields,” they added.
To contact the author, email
